LAST UPDATED: MAY 2021
Ever since the pandemic hit us, businesses across the globe are having to reassess the way they function. Streamlining assets and enhancing productivity have become key to staying afloat and making a profit margin in a market that is constantly seeing highs and lows.
Globally, organizations invest heavily in software that helps them conduct quality business. The Flexera 2020 State of Tech Spend says that the average IT spend across all industries is about 8.2 per cent of revenues. Software and IT organizations have the highest spend at 24.7 per cent of revenue, followed by industries like tech hosting (15.9 per cent), financial services (10 per cent), retail and e-commerce (6.2 per cent), and consumer products (5.9 per cent).
The key issue organizations face is often with their software licensing management. While most companies realize that they require software, not being able to assess it optimally is often a pain point. Here are some issues that arise as a result:
- Being audited by a software publisher.
- Increased software spending that is not proportionate to your business growth.
- Constantly buying or renewing software licenses without actually assessing their need or the practical usage leading to wastage of resources.
Such software asset management issues can cause problems for organizations and the need for a focused approach to software investment and management will become high. With every passing year, contracts get more complex, software licensing gets extensive, usage rights are constantly changing as are the number of software titles and the vendors offering it.
Being able to stay compliant and optimized becomes a struggle.
The improper utilization of the software or lack of compliance can end up with a business being penalized, its reputation undermined and financial losses that can run into millions. Being able to control software spend, remove compliance challenges and optimize software to ideally meet business needs, has to be a priority. There are industry-tested tools and methodologies to help a company do this.
The Benefits of Optimal Licensing
Any organization stands to benefit from a comprehensive and systematic approach to optimal licensing. The benefits include:
Higher Cost Savings: With optimal licensing, organizations will be able to understand their software usage more precisely. Any unnecessary or under-utilized software can be removed. Licenses, based on usage and other factors can be consolidated. All these steps can result in as much as 25 percent savings on IT investment for a company. It reduces IT spending and also helps in arriving at a more comprehensive IT budget at the beginning of every financial year.
Better License Investment: Organizations are known to spend several million dollars on license investments. Having clear visibility of the company’s license usage ensures that you invest only in what your company needs. It also gives you precise insights into the software needs of the company. Ensuring better licensing coordination enables transfers, license acquisitions, and disposals to be more efficient. Compliance issues, if any, are easily taken care of.
Steer Clear of Fines: It is a norm for most companies to be audited by software companies at least once every financial year. With optimal licensing, the occurrence of this can be reduced and any deficits can be spotted well in advance and monetary risks avoided.
Creation of Ideal Software Portfolio: When a company cleans its IT set-up and gains a better understanding of it, a clearer picture of IT investments emerges. Such insights are invaluable in getting a company’s IT investment to align with its business goals. The clarity in licensing and other aspects of IT can help businesses make clearer forecasts about their IT spends in the future.
Don’t Buy, Repurpose: Employees are constantly moving through the hierarchy of a company. With the right licensing approaches in place, you will be able to figure out which licenses can be repurposed for use in a better way, rather than investing in completely new software, which may have some redundant features. This also plays a role in reducing IT licensing spends.
With an understanding of the need for optimal licensing and the benefits to your organization, here is a look at planning your Salesforce cost of licensing and optimizing the process.
How to Optimize Your Salesforce Investments
Salesforce is widely regarded as a globally popular CRM. However, mid to small-level companies have increasingly found their licensing-cost matrixes to be complex. While making use of AppExchange, several Salesforce-related apps fail because user licenses are incorrect, or the features opted for are not what the company requires.
It is important for any organization that works with Salesforce to be able to optimize licensing costs to get the best possible benefit. Here are ways to optimize your organization’s Salesforce pricing for licenses:
Choose a License Based on Requirement
Companies often tend to invest in what seems to be the most comprehensive package available. That is why organizations often buy the enterprise edition of Salesforce giving them complete access to the CRM set-up, Force.com AppExchange apps. The access to functionalities is unfettered. However, in most cases, the organization ends up using only a few of the features while paying for a lot more.
A smarter approach for companies would be to choose the enterprise edition but make choices that will give a range of licensing options without heavy investment in licensing fees. These could be:
- Salesforce Platform License: With this license, companies that have qualified in-house development teams will be able to access customized apps that they have created or those that have been placed in Force.com AppExchange. You will have access to platform functionalities of accounting, contact management, reports, customized tabs, with minimal restrictions related to user accessibility, among others. The CRM function will not be accessible.
- Salesforce Platform Light: This is ideally suited to small and medium-sized enterprises. It is the same as the first option but comes with a monthly login cap for users.
These two licenses are ideal for organizations that don’t require pre-created CRM objects because they create their customized objects to manage data sets. For a business that is looking to expand rapidly, being able to use all of Salesforce’s features and offerings rapidly would be ideal. This would mean investing in the Social Enterprise License Agreements (SELA) that includes Heroku and Radian6. However, this same license would be quite expensive for any company that is not planning an immediate scale-up of business or adoption of a large number of software apps in a short period.
Consider Force.com Licenses
Let’s look at the pricing of Salesforce Enterprise licenses. Each license comes at an annual cost of approximately $1500. A way to bring down this expense is to consider Force.com Licenses. These licenses come for $300 per license annually. There are two options within this – Force.com One App License which is for users needing access to a single customized app. It is similar to the offerings of the Salesforce Platform license but for one app only. It permits read-only access to certain objects like accounts or contacts. The second option is Free License where a single custom app can be run. Here you will not have access to any custom objects or CRM functionalities.
Consider the Modular Approach
With this approach, you can consider building up your functionalities based on your requirement. Salesforce offers modular construction by way of add-on functionalities. You invest in a base package and include add-ons at an extra cost. There are several functionalities on offer such as mobile accessibility, a knowledge-based module, the ability to access Salesforce offline, interactivity with community or partner portals, and more. The important part here is that as a business you have to have a clear understanding of which of these functionalities you will need and why. Simply adding them because they are available defeats the purpose of trying to optimize your licenses and will result in unnecessary expense.
Use the License Reduction Option
To optimize your Salesforce licenses, your business has to actively manage users. Every license taken allows for a one-user log-in. If that person no longer requires it and it is deactivated, you have the option of logging a License Reduction request. This is only if you are not reassigning the license to another user. This helps bring down the number of active licenses that you are billed for and reduces costs over a longer time frame.
Negotiation is Never off The Table
It is important to track the actual usage of your Salesforce licenses. This information comes in handy at the time of renewal, helping you negotiate prices with Salesforce. If the usage is lower than anticipated it is something that you can work out with them during annual renewal talks.
Ways to Negotiate and Forecast Your Salesforce Needs
For any organization looking to invest in Salesforce and make the most of this investment, negotiation is key. This can be a complex process but, with some planning and forethought, it can be done optimally. Here is a look at ways in which you can gain leverage and make the most of your Salesforce deal.
Get Started Early: If you are adding on new projects to your workload and are looking at bigger deployments, beginning negotiations as early as eight to 10 months before the expiration of your current license is essential. If the workload remains the same, then at least six months in advance gives you better leverage. If you are looking to target the same requirements from Salesforce, then re-pricing is what you can work on. If you have an increased budget, then you can work on re-negotiating terms.
Understand Contractual and Business Risks: As with any service agreement, you have to be aware of all the contractual and business risks involved when negotiating your Salesforce license deals. They include:
- No reduced costs when decommissioning: You have to know that when you decommission or remove products out of your Salesforce agreement, you may not be able to reduce the costs of the current environment you are paying for. Salesforce contracts often stipulate that if licenses are decommissioned, then renewal caps that have been agreed are void. This is a risk you have to look out for and negotiate.
- One-time pricing over renewal caps: The standard renewal cap stands at around seven per cent. However, Salesforce forms are increasingly speaking about one-time pricing. What this essentially means is that Salesforce works into its contract the ability to increase pricing substantially during the time of renewal. Another aspect of discussion to consider during negotiations.
- Heavier costs with restricted-use licenses: While cost savings are possible, you may end up paying the difference between full license usage and the prevailing rate of restricted-use licenses for any aspect that is out of compliance. The onus is on the business and the fee for such instances can be quite heavy.
- Restrictions on swapping and transferring of rights: Salesforce offers options to swap out products that they are not using for ones that they may need. It also makes room for transfers of products from one department of the organization to another. However, there may be limitations on this. Understanding what these limitations mean for your business is important during negotiations.
Forecasting and Demand Modelling: This is perhaps the longest preparation step in the process of negotiating with Salesforce. Businesses need to understand the quantity/number of products and services they need and the times at which they need them. For this, businesses will have to collect usage data from within the organization. At the time of renewal, you must get clarity on
- All aspects that you as a customer are entitled to from your Salesforce deal.
- What are the products you already have deployed in your current environment?
- Does your business foresee any new projects or the requirement for the organic growth of licenses?
As a business, it is also important that you identify all those products and quantities of license that you will require for smooth operations. Make a separate list of services that would be a value-addition and another one for future smart investment. These can be incorporated into the demand model that you are setting up. It will help quantify your project needs in the future. Doing this for at least three years ahead is a great way to plan.
Take Control of the Deal Timeline: Time is key when negotiating with Salesforce. As a business, ensure that you have a well-planned, documented calendar set out for your negotiations. This should begin with when to first approach Salesforce to open talks and the time you share your first proposal. Often Salesforce (as any good business would try to do in a negotiation), will try to control the deal timeline. You have to ensure that the control remains with you. Therefore, factoring in ample time for multiple rounds of back and forth at each stage of the negotiation is important. If you want to get what you want out of the deal, be prepared for a long-haul discussion.
Understand the Inner Workings of Salesforce Sales: Remember that every sales deal is based on how motivated the sales team is. Salesforce, like most other sales team models, offers its representative’s commission on each deal that they work out. Understanding the financial calendar that Salesforce works on will help you time your negotiations well. When the salesperson feels that there is a strong incentive to see a deal through, there are some concessions and changes to pricing, terms, etc. that he will be willing to offer. Salesforce pays commissions on deals sold, as well as on every year that is added to the deal. Here is where your forecasting data comes in handy to plan a better deal for your company.
Deal Implementation Negotiation: Once you have your forecast model and risk assessment done and your negotiations complete, you should plan alternatives. You can chart out several options on how to expand or bring down the scope of your planned agreement based on elements that you must have and those on your wish list. You can also negotiate different timelines for the deployment of software based on your company’s needs.
Control Information Shared: In the course of a negotiation, businesses have to be clear on what information can be shared. The idea is to align Salesforce to company needs and not the other way round. Don’t reveal project start dates till you enter negotiations. Have members of your IT procurement team have informal discussions with Salesforce suggesting what is needed but in a manner that does not make any contract commitments. This helps when the actual team is making its negotiations.
Rope in the Top Management: Organizations must bring all of their top executives to the planning table. Everyone, from the CEO to CFO to the CCO and of course CTO have to be informed of what is being planned and have all needs aligned. The cost of implementation, making transitions where needed, analyzing returns, have to be jointly discussed. Presenting a unified proposal is the key to getting yourself a good deal.
Best Practices for Salesforce Licensing Optimization
Now that you have understood how to work out forecasting your organization’s needs, build a negotiating strategy and develop the best possible deal, here is a look at some best practices for Salesforce licensing optimization. You can bring down your spending by up to 30 per cent with three simple approaches.
Optimize Licensing Configurations – This is essentially understanding what licenses work best for you. It involves evaluating your needs, creating a forecasting model, and considering a modular approach to your implementation. Enterprise-level licensing can be complex. Breaking it down and aligning it to the needs of your company is the approach to take to optimize licensing configurations that you settle on.
Recycle Licenses: This is also an approach discussed earlier, which can bring down costs significantly. When an unused license is recycled, it brings down the need to purchase new ones and to carry the monetary burden of redundant licenses. Not only does the company IT spend reduce, but it also brings down maintenance costs. For recycling licenses, processes in the organization have to be top-notch. Only then will you be able to track unused licenses.
Most organizations tend to absorb such expenses simply because it requires metering to be able to catch unused licenses. The use of Software Asset Management (SAM) tools or client management tools can help with this evaluation.
Utilizing SAM Tools – It is a given that optimizing IT spend is complex because of licensing. Optimizing licenses is complex and requires intensive labor, qualified professionals, and is often not a scalable task. The larger the organization, the more complex tools it will need to help them assess needs. The use of SAM tools can aid with automating the process, and speeding up the process, and improving the efficiency of manual processes.
These are essentially the challenges that you could face when optimizing your Salesforce licensing and the ways to go about it. As with any long-term investment, planning, preparation and negotiation is key.